>> it has been an exercise in pain. the house of pain. when the e-mails are the most hurtful, that is when i know i am the most right. i had an incredibly high volume of hate mail. i came out and said the down side was minimal. i didn't say it was done. i said it was minimal. i had put together a model where

i thought the market would go, if the worst was at hand. includely not just the great recession. you i assumed from my calculation that all the averages would to zero, including bank of america and city group and j.p. morgan. and on top of that, i took in to account the dividends of caterpillar and 3m, all of them dire assumptions to say the least. even under these conditions i could not see a low that took us from the prices we were. from the moment i did it. people were telling me i was crazy and i had no idea what i was talking about. a no later the dow 1500 points higher. these people still there,

sending me e-mails saying that it was still too soon to tell. told me i lost my rig or, and i was no longer in hedge funds so did not know what i was doing. if you find yourself making that kind of argument. you are digging in your heels when you should be changing your mind. this is something that is hard for the most emotional investors and traders to come to terms with. believe me, i know. but it's crucial if you want to be a better investor than you are. people do it all the time with stocks. we would never allow ourselves to make the same argument. let's use an story that will drive it home. would you claim your favorite basketball team would still have a chance of coming back from behind to win an hour after the game ended. how about a week? how about a month? of course not. if anybody did that, you would think they were insane. the facts are changing in the business and at some point, you have to acknowledge that the

game is over and you were wrong. i'm not trying to be glib about this, it's part of the emotional side of investing. very few people in the financial media will talk about it. swallowing your pride is not easy. but the more you dig in your heels the less time you have to take advantage of the situation and profit from it. how do you know if it's time to say game over, if you find the need to come up with more and more excuses and reasons why things will go your way. then it may be time to ponder why it hasn't. you have a huge edge, i have a tv show calling the markets direction, i try. easier to say, just wait and see. look, you don't have to worry about publically embarrassing yourself, focus on the potential profits and your ego. i'm not a politician either,

they cannot change their mind without ridicule. if i do not change my mind, i lose money, it's a far higher judgment to worry about. when the facts are in, and you have been proven wrong, do not dig in your heels, simply change your mind. ray in georgia, ray? >> caller: yes, sir. >> yo, yo, what is up in. >> caller: i have a question on stocks. i heard you have one time say that you did not like the u-stops. and i was trying to figure for us home gamers how do you protect yourself if you do not use stops or stops with limits? what do you think? >> okay, first think about the flash crash, you are stocked out at a horrible price, who knows what you got and the market comes back, you got hurt. more important, what are you doing here in this is real money. you have to stay close to your money. you are putting it in a machine's hand when you do that. i want you to say, how is the market doing, i want to stay close to it. i don't want to go on auto

pilot. putting in the stop losses is auto pilot, i don't like it. stick with the facts, figure out if it's a buy or sell and stop bailing out when the fundamen l fundamentals may not have changed. skip in new jersey? skip? >> caller: big booyah too you. >> what is going on? >> caller: are mlp, master limited partnerships an appropriate investment for ira retirement accounts? >> here is why i hard wouldly ever do this. -- hardly ever do this, for give me, you have to speak to your accountant for this, because you can pay a penalty if you have too much income coming from them. you do not run afoul of the penalty. let's go to anup in california. >> caller: how are you doing? >> really good, how are you doing? >> caller: good. you have mentioned in previous episodes that it's valuable to track a group of fundamentally

good stocks and buy when prices are down, much like you may scope out a fancy watch at macy's and then buy in the after christmas sale. >> still working. >> caller: i wondered if you the price the earnings to share will help to time the purchase. and adjusting the cash flow rat ratio, would that be a better metric? >> i like that idea, that is truly rigorous, but in the end, what will tell you whether to buy or not is if the market takes the stock down, not the company's fundamentals, particularly, if they pull back a 5% to 8%. that is when i want to strike. mules fail at hard trials. when the facts change, i'm urging you, do not dig in your heels, have some discipline. change your mind.

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>> welcome back to this disciplineary edition of "mad money." i'm not talking about the cat of

nine tails i'm talking investing disciplining. rules that let you make money. the one i developed based on 31 years of investing insight and that is that price matters. i know, seems obvious, bear with me, i know it's anything about. price matters so much, it means that you can buy the stocks of companies you don't like. that is right. ones that you don't like provided they go low enough. in fact, for the right price, even inferior merchandise is worth it. you hold your nose and buy the stock of companies that you did not think you wanted to own, just because they are so darned cheap. i will never endorse a stock in the fundamentals of a company are deteriorating or go anywhere near a company that could be in bankruptcy.

you need a balance sheet. but there's a lot of space between best of breed company and one that is uninvestmentable. the stock of the lowest companies that pass the smell test sell for more than i would be willing to play for them. usually because there's too many hopeful invests, buying barely adequate merchandise, when it appears cheap, but it's selling for the appropriate discount. if the price drops far enough, then it's perfectly okay to buy a stock, that is how much price matters. now, look, i get enowhere us amounts of hate mail and vicious tweets on this this. people say how can you not like it now? i mean, it's really hot. just as even best breed companies can be too expensive, there's times when worst of breed companies are worth buying, even companies that i

slammed on high prices. worst of breed is different, it may not look like much, but at least, at least it can get to the dog show. how do you know when the price is on something you would not otherwise buy? obviously there's a sliding scale, the better the company, the more you should be willing to pay for it. if you are speculating, it's good to look for companies that are left for dead, even though they have a perfectly strong pulse on closer inspection, no price that you should be willing to play for a company that could go below. never, never, never, if you are convinced that the street has it wrong, buying an unattractive company at a great price can make sense. at the end of 2011, the regional banks started to break away from the international banks. i had disliked the banks, u.s. bank, and wells fargo.

i had to warm up to them employment was coming back, and housing market was getting better. i held my nose and said buy. i said i do not like the bank group, it worked. i was blasted for flip flopping, i would leave the show and go to twitter. people say, hey, i thought you hate tod -- i thought you hated the banks. at the right price, you cannot hate. simply there's not many times when a half way good stock will get hit that hard. if you keep your eyes peeled for companies raising money through equity offers. here is a great way to raise money. it does not take so much to raise capitol through secondary, you can find great deal on merchandise that you would never have looked at once let alone twice. these dials happen all the time. and i try to get you atuned to them on the show, so you can pounce when they come up.

just in terms of price on the same day, one day, may 13th of 2009, i will never forget this, because it was one of the great opportunity days i have seen. both ford and bb&t, a southern regional bank that had a lot of bad loans on the book, but i thought looked like a survivor, sold stock at radically discounted price. ford priced at a 5% discount to the previous day's close, juicy and a 24% discount to the previous weeks and bbt sold it at 10% discount to the previous close and a 27% close to the week before. before bbt got the deal done, the market was soft ened so the price sprang back, and the company is worth more after raising the money than before. it made the secondary offering a steal. both deals immediately made you money. even if you had no prior interest in either ford or bb&t, and thought they were both

mediocre at best, at discounts that steep, both stocks, well the stock price changed my mind. those were great buys. i want you to always keep your eye on the price. even less than stellar companies can be big winners if you have a chance to buy them low enough. now the ultimate example of worst of breed buying opportunity came at the bottom of 2008 with amd, a stock that i have hated almost since the beginning on of the show. i have hated it for more than 22 years, i hated when jerry sanders ran it in the '80s and '90s. but after it's graphite tip division took tips from better companies, the opportunity was too great. i called it a hold your nose and buy situation. if you listen to me, it could have gone to double in a mat of months. yeah, sure, it got expensive, but the trade was made, the money booked and by the way, here is insight, they do not ask is you how you make it when you

deposit the winning at the bank. just as some fixer uppers do not have a price that you want to pay in another time, stock gets so cheap that they are rough diamonds, but diamonds nonetheless. >> taking control of your financial destiny is smart, why go it alone? >> something that has a much larger bearing on you and the stock market as whole. >> i am having a hard time with my favorite stock. >> you can beat the professionals. >> and your coach on the road to financial independence. "mad money."

>> nobody is more passionate about the market than i am. nobody in the whole country. >> i want to thank you, you have saved my retirement. >> you are why i come out and do the show. thank you so much. >> the stuff that you are doing for all of us is so important, and i want to say thank you. >> my husband and i watch every day, and we count on your help for small investors like us. >> put cramer's experience to work for you. "mad money" on cnbc. ♪ >> tonight's show is all about helping you better understand the new stock market environment, and teach you to analyze stocks so you know when they are telling the truth and you know when you are being

misled. how can stocks, pieces of paper, be honest or misleading? they can't. but the companies behind them can. which brings us to the subject of my next rule. don't take your queue from an inferior company, when a worst of breed player says things are bad for the whole industry, i don't want you to take it on faith anymore. there are strong and weak players in every sector and the weak players will almost always seek to pin the blame for their failings on the entire industry. when dell said things are bad and intel said it's bad, do not sell the computer hardware stocks based that because they are competitors and suppliers. you should not sell apple and ibm, because they have little to do with intel, other than they are all tech let's know honest.

you will not hear companies say, we are doing badly because that company is grabbing our lunch. they will not come out with the fault is in our stars not ourselves style revelation. the guy would get fired in an instant. you need to be able to recognize an excuse when you see it. bad news for hewlett-packard could be just bad news for them. intel and apple will say, it's only raining on hewlett packard's side of the street because business is going good where they are standing. you cannot assume that all companies in the same industry are equal. sometimes there's not any pin action. which is why i keep my pin sounds. you can't compare one company's

results to the rest of the industry. that is frequently the case when the company is a loser. hey, it happens in every industry. it's not just tech stocks that hide behind others in the sector when the ball drops. we saw with avon, everyone as direct sellers grew, they were talking about the business model not being any good. we saw it with p&g -- we saw it play out in fast food, wendy's saying that the consumer cannot afford a hamburger today, but it could tomorrow, when mcdonald's said they are selling millions. here is the bottom line. whatever the industry, when a company with a bad track record blames the poor performance on a

tough environment, it's probably making excuses. not telling you something that applies to the stronger competitors who are likely running circles around them. don't believe the hype. patrick in arizona, patrick? let's go to della in california to start. della. >> caller: booyah, jim. >> booyah. >> caller: would reinstating the uptick rule help the market? >> i think the answer to that yes. but the institutions trading are more powerful than the little guys and they want to see quick trading. the fees are good for the companies that trade and because you know what? these guys want to short with impunity, i think the markets want to raise capitol and they have been driven out by this and that makes the market go up and down quickly, the little guy

doesn't trade like that. only the hedge funds do. they liked it b-- liked it abolished i didn't. patrick? >> caller: yes, let's talk about being diverse, there's three, which ones are the least important that we should use in making a diverse portfolio? >> what i like to do, i use the s&p groupings, for instance, if the financials are say, 15, 16, 17%, there that takes care of that groups, banks, insurers, tech say 15, that is hardware, software. industrials, companies that are cyclical in nature, that is another one, obviously the health care drugs, the foods. i like to use the s&p groups. those are the ones that make it so that i can say point blank,

this diverse from this group. sweet little lies, don't blame the tools. when a company blames a tough environment, it's an excuse for you not to buy. stay away. stay with me. keep up all day long, follow at twitter and tweet your questions, #madtweets. se me, sia have to ask you to power down your little word game. i think your friends will understand. oh no, it's actually my geico app...see? ...i just uh paid my bill. did you really? from the plane? yeah, i can manage my policy, get roadside assistance, yeah, you know, pretty much access geico 24/7. sounds a little too good to be true sir. i'll believe that when pigs fly.

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>> reporter: lightening round is sponsored by tdameria trade. >>. here is a big statistic on island new york. >> boston, nashville, california, georgia, booyahs come from all across america, let cramer help you channel yours. ♪ ♪ don't believe the hype >> welcome back to the disciplineary edition of "mad money" where i am trying to beef up the disciplines that make you

a great investor. it's a market full of misdirection, like the football field, they fake that way and go that way. if you trust what the people on television are saying, you will get burned. this next rule to paraphrase, friend, buddy, pal, public enemy is about helping you to not believe the hype. not all upside surprises are worth it. when a company reports higher shares than on average expected, all the headlines will say up side surprise. stocks are supposed to go up when the companies that they are attached to deliver higher earnings. but what they call an up side surprise and what impresses the professionals in a quarter are two difference things. this distinction is confusing. when it's surprisingly high for a quarter, sometimes the market

goes down. if a price does not send a stock higher, what can? and i'm not talking about situations where management lowers its guidance, what it expects during the future. at the same time they deliver higher than expected earnings that stock will go down. when we buy shares in a company we care about, what it will earn in the future, not what it earned in the past is what matters. no, i'm talking about the confusion that results from the headline writers not drawing a serious distinction, they cannot had a headline, between the high quality up side surprise and a slight of hand up side surprise. we like companies that have the first one. how do you tell the difference? simple. remember this word, organic, remember this one, manufactured. a high quality up side surprise, a better than expected quarter is generated by higher than

expected sales, organic that leads to better than expected earnings per share. it could mean different things. it's all good. people are buying the company's product, the company is taking market share from its competi r competitors or growth is coming from a new business. a real upset means that the environment is improved tore company improved. both indicate that the sales will are grow faster in the future, that is a reason to buy. as the big boys in wall street value stock based on revenue growth. it's not often that stocks go down. when we were in the great recession, these up side surprise stories advanced. as you see by looking back at apple's run, it produced up side ever up side, almost entirely much better expected sales on the iphone, ipod, and ipad.

and as we preach on "mad money," a high quality earnings beat can be accompanied by a dividend increase, particularly one of a great magnitude. and perhaps the best of all, once the dividend increased, it's not cut without tremendous embarrassment. what about the low quality slight of hand kind, it's easy to tell the two apart a low quality earnings beat is based on a better bottom line. here are the up side surprises generated not by improved business but because management cut costs. they cut the head count. may they manipulated the tax rate through aggressive but legal accounting treatment or maybe they bought back stock. the latter, the bought back stock earning surprise is now regarded as a loser by the smart

professionals are even though a lot of people are fooled by it. it only indicates a smaller share cap and not that the profits were better than what anyone was loobing for. almost all the food and drug company generate what i call, a slight of hand up side surprise. and that is where they can't manage the real thing. they do not have real growth. this is the dirty secret. the reason the big boys do not care about the up side surprises, any large enough company with a half way competent management and gocfo that is in a good predictable line of business can make sure they beat the streets expectations, along as the quarter is not really bad. food and drug companies use buy backs to generate earnings per share based on up side surprise. that is how they beat the estimates. it doesn't take anything special. it doesn't indicate that things are in a way better, it just

tells you that management is shrewd enough to make sure the numbers do not disappoint anyone. if creating the up routine it's not a surprise to the big boys. you will not make the confused decision that the earnings per share number is all that matters. accounts for a lot more. i need to start with ron, in north carolina. -- multiple ipos, at some companies are issuing, does that diminish the common stock price? >> the ipo sets the common stock price, you mean the secondary? >> yeah. >> okay, yeah, secondary can depress, the stock will shoot up and then, what the brokers do is

they soft enit, they announce that it's a secondary and then the stock trades down, down, down, and boom, they slap it on and often times it's the buy of a lifetime. i often like to buy secondaries after the market has been soft ened. think of omaha beach, they soften it up with the navy and bombing and aircraft and then the soldiers go in. let's go to vince in colorado. >> caller: hi, jim, i'm wondering, i'm a business and economics student here in the university of denver, tee bow, land, if the markets stay trong because of the new medal class, there should be a way to take advantage of that, i think the firms will be surprised if they switch from exports to the internal market. >> how about the cpfl energy?

buy utilities, when the country grows utility comes make sense. i think it's the best way to go. joe in arizona, joe? >> caller: hi, jim, a big desert booyau booyah to you. first of all, i want to thank you for the second half of last year, recommending home gamers to switch to big high quality stocks paying big dividends, felt better in the crazy time. >> yes, particularly when the market was down by 19% and we did not hit much at all with the strategy. >> caller: no they were great stocks. from calculating the peg growth, is it current year divided by prior year? >> yeah, future year estimates,

you know, you i look at the step function, last year, this year, and next year, and it's between this year and next year that i care most about. what i do, frankly, just so you know, i do use the street estimates to try to calculate what the peg ratio is. with the exception of a couple stocks like apple over the course of the last few years i'm satisfied using street estimates as a way to go. an up side surprise can lead you to a major down side, don't believe the hype. check the sales before you check the earnings to be sure it's a real and not manufactured surprise. stay with cramer. does the market have you stumped? no fear, cramer is here, e-mail him at cnbc.com.

>> one of the most natural misleading mistakes that most people make is to assume that the people criticizing a mashlth, telling you to avoid or sell stocks have to be telling the truth. wrong.

don't assume that commentators that dislike the market are any less self interested than those that talk up the market or talk up individual stocks. whenever we hear someone tout a tock, we assume they own it and treat it with skepticism. we do not reserve that level for people that bad mouth the market. more often than not, investors will assume that people that criticize the market do not have an agenda or are not pushing ones. they have got the ethic, to most people, expressing a negative view is a way of bolsterring their market. people who criticize the market on television, or in print or on

the web, are not necessarily trying help you. when someone said they like a stock, they are branded, when they say they hate the entire market, how often do you think, wait a second. this person may be shorting the market and hoping to knock the stocks down to buy them in a lower price. it's easy to recognize that people need to stocks to go higher. because it's less familiar to home gamers it's less common to make the connection that some people need markets down. some people need markets to go lower to out perform the averages. in my opinion, there's more dishonesty coming from the short sellers than the longs. you have to remember that there are people out there who want to push prices down every bit as much as those that want to drive them up. i'm saying that the guys driving them are touts, both sides can

be misleading. sure, they can be doing rigorous work, the shorts. they can also be pressing their truce when it's most convenient. meaning when the short is against them. when the people have to disclose their position, they never have to tell you, hey, i'm under invested, i'm getting left in the dust by my competitors, so it's vital i knock the market down to give myself a good entry point. if they don't own anything or short anything, there's nothing to disclose, but they may have a interest in knocking stocks lower because of how they are positioned. you just, you are just never going to hear about it. and believe me, at any given time, there are people in the industry that benefit from a broad stock market decline and then go on tv to make the case that it will happen and encourage you to get out while you can. and as the bull market gets going, all the hedge funds that

were net short. meaning they were betting on the stock to go down or under invested meaning they have less in stock and more in cash are now under performing and they are becoming more and more december operate. money managers who have been left behind by the market start to feel like cornered rats getting ready to be butchered by a feline. a lot of hedge funds cannot handle one year of under performance. i know this stuff, i was in it for 14 years. it takes a lot of build up good will with clients to have a good record to explain to them how you barely made any money at a time when stocks everywhere were soaring and still have a business by the time you are through with the explanation. you have to be careful, when the stocks are the strongest, many of the hege-fund managers will plant negative stories in the press and try to take advantage of the media to spread as much

negativity as possible to get stocks down so they can buy or because their shorts needs to work for them. so saw a lot of it in 2000 and ate, and 2009. it would be wonderful if we lived in a world that was honest and nobody man ip-- manipulated the market. but the only way to deal with it is to know what though watch out for. remember to be on your guard, the people bad mouthing the market are not one bit more honest than the people that come on tv shows and tout stocks for their own profit. >> it's a brutal full contact sport. from the time the whistle blows to the last play of the game. >> markets absolutely getting hammered today. >> i know it's not easy. but i promise to keep fighting

for you. >> jim cramer, leveling the playing field for all. >> the road is a tough one, but the payoff can be your greatest win of all. >> "r.

>> let's catch up with mad mail and do some mad tweets. this one is from behide 15. you mentioned tracking the stocks and buying them with pull backs.

what are the exceptions? what to look for? >> i got the idea from running research in goldman sachs, what he said was buy stocks at the time that are 5-8% on a pull back typically because of the market going down, not because of the fundamentals in the stock, remember the stock on the high list are hard to come by. not many on that list. but if they are going down because of the market not the fundamentals of the company, you could have a good buy. sometimes the companies have pull back, but i really and truly want you to be sure, the easy way is to make sure that the market brought it down and not the stock itself. all right, here is one from txu 99. are dividend stocks a crowded trade? >> all right, this drives me crazy. okay, jathere was a multiple ye

study on dividends and how they are responsible for 40 to 50% of the stock's price increase, it's only people who trade ridiculously high frequency are the ones worried about this nonsense. they are trying gain short-term trades. i don't want you to doing that. i want you to buy the dividend and reinvest it. take a look at the performance in the dow, 5.5%, why? because the yields were higher for the dow stocks and if you reinvested the dividends you had a return. how is that crowded? how about smart? okay, here is a mad mail, booyah cramer, i have had trouble selling a stock. it is hard to sell winners, but now i sell call auctions and it goes up past the call price, am i crazy? yes, any strategy that cuts

off your up side, is not good. i say no, if something great happens to your stock, and you would not have bought it unless you thought something would happen, you cannot participate. meanwhile, if something bad happens, you are short the call, you are afraid of a take over. i have to tell you, i know smart people that sell cover calls, it's a sucker strategy to me. i buy stocks because they are going to go higher. i do not want to cap my up side when i do. here is one from arizona, how much gold should i hold? i felt that between 10% and 20% should be your bench mark, when gold flew up to 1800 in 2011, i thought, let it pull back and you can sell some r but you have to keep the core position, i do not regard it as a stock, it's a currency.

it's a alternative currency to that which we have in the united states and europe. i trust gold not paper. that is why 10 and 20% makes sense. hello mr. cramer, i watch your show and i am very interested in investing. i'm new at investing and i am worried i will not pick the right speculative stock. we are limiting the amount of speculation, because it keeps us interested, speculation makes us pay attention, but it can be dangerous. what i like to do, i like to speculate in bio tech, that is my chief one. i try to own bio tech companies that have more than one drug so if they have a failure you are still in the game all you have to do is check the big winners like a company like regerom, they had a monster run, and that is the kind of speculative bio

tech stock i look for. here is one from sharon in maryland. jim, thanks for a great show, following your strategies i have moved most of my holdings into high yielding stocks and mlps, when is it time to sell the high yielders. sharon, this one may sound glib, but i do not mean to. when the high yielders are no longer high yielding, you want to sell them. you trim them back and then when the market brings them down, you buy them. that was the strategy we used in 2009. 2010 and 2011 and it worked and those were the rough estimate years -- roughest years ever, it will continue to work. thank you tweeters, thank you e-mailers. thank you viewers.